wall street nuggets

The new stem cell research legislation which is likely to be proposed in Congress on Friday appears to have stimulated some stocks in the SigmaInverse Biotech sector which was up 1.4% on Thursday (see the chart below). Leading the sector, with significantly higher volume than normal, was STEMCELLS INC [STEM] which was up 16.9% closing at $3.11.

An upgrade to “Neutral” by Merrill-Lynch sparked IMCLONE SYSTEMS INC [IMCL] up 8.0% closing at $29.21. Another biotech company benefiting from an upgrade was GENZYME CORP [GENZ] up 5.6% closing at $65.60, following an upgrade by Robert W. Baird from “Neutral” to “Outperform.”

Up on strong quarterly results were ANGIODYNAMICS [ANGO] which rose 15.6% closing at $25.39 and IMMUCOR INC [BLUD] which was up 7.4% closing at $32.35.

BIOCRYST PHARMACEUTICALS INC [BCRX] jumped 8.1% closing at $12.07 on the news that it had been awarded $102.6 million from the U.S. Department of Health and Human Services to develop an influenza neuraminidase inhibitor for the treatment of seasonal and life-threatening influenza strains, including avian flu.

Overall, the average stock in the SigmaInverse Universe posted a gain of 0.21% on Thursday, with 52.5% of the members posting positive returns for the day and 44.6% posting negative returns for the day.  Unusual sector moves were seen in Mining (down 1.9%), Oil & Gas Production (down 2.0%) and Online Technology (up 1.7%).

With unseasonably warm temperatures across much of the country through Saturday, it is likely that the global warming (GW) impact will exert further downward pressure on Oil & Gas, through the middle of next week.  However, there is an interesting paradox in the fact that, although we see more sunshine every day in the northern hemisphere following the winter solstice, the average daily temperatures will continue to drop well into February, as we continue to lose more heat overnight through radiational cooling than we pick up during the day.  While GW is real, the short term impact of warm weather on the markets appears to be somewhat irrational.

By the way, Thursday’s gainers were more concentrated in the micro cap stocks and we expect to see more of this through the announcements coming out of the Consumer Electronics Show in Las Vegas (January 7-11) next week.

Some coolness in the brick and mortar retail world this holiday season has been attributed to expected growth in the online retail world. However, the early evidence of holiday online traffic is not that encouraging with a few execeptions. In most cases we see a significant erosion in online reach (unique shoppers per million online users) with the exception of BUY.COM (unfortunately went private in November 2001). We suspect BUY.COM is succeeding thanks to effective email based marketing campaign and online video product reviews (especially user videos).

A sampling (TARGET CORP [TGT], OVERSTOCK.COM [OSTK], BUY.COM, and AMAZON.COM INC [AMZN]) of the online traffic patterns using a “Reach” metric for the past 3 years, as available through Alexa, follows.

Note that increasing transaction prices will soften the impact, but on balance, the holiday season does not seem to be encouraging for the online retail world.

SMITH & WESSON HOLDING CORP [SWHC] was shot down 15.8% closing at $11.60 after announcing results for the quarter ended October 31^st. The company reported sales of $50.8 million, up 42.9% over the same period last year, and net income of $2.9 million or $0.07 per diluted share, which was well below the consensus estimate of $0.09 per diluted share. It appears that the market was spooked by a sequential decline in the gross margin, without bothering to consider the possibility of seasonality or trends in the margin. It should also be noted that the number of shares outstanding increased about 5% and we would like some clarity on the line item “Other income/(expense)” which hit the bottom line pretty hard. However, when you actually look at the gross margin for the second fiscal quarter year-over-year, it improved from 29.3% last year to 31.2% this year!!! At this point there is actually no evidence of seasonality in the margins, but still, the second quarter margin was only slightly below the average of the previous 8 quarters (31.8%). Given the strong revenue growth, this is definitely the time to pull the trigger.

CREDENCE SYSTEMS CORP [CMOS] (Scientific & Tech Instr) up 25.6% closing at $4.96 after upgrades by Canaccord Adams from “Hold” to “Buy” and by Needham & Co also from “Hold” to “Buy.” Looks like the red ink is near an end and there is probably still some upside potential up to about $7. We would be somewhat cautious regarding the amount of long-term debt.

CATALINA MARKETING CORP [POS] surged 20.1% closing at $29.11 after filing an 8-K announcing it had engaged Goldman Sachs & Co. as a financial advisor, following receipt of an unsolicited private equity offer regarding acquisition of the company. At this point the particulars of the offer are unknown, so it is rather difficult to determine whether the surge presents an opportunity. Looking at the current P/E ratio of about 20, it appears the opportunity that was there is now gone.

MICROVISION INC [MVIS] (Electronics & Semi) took a macro step up 10.6%, closing at $3.02 as MDB Capital Group began coverage with a “Buy” rating.

EXPEDIA INC [EXPE] (Online) exploded up 9.9% closing at $20.46 following an announcement that the company intended to start a stock buyback program on Monday using a Dutch auction. Since the goal is to buy back approximately 10% of the 331 million shares outstanding, there is obviously no opportunity at this point.

ISIS PHARMACEUTICALS INC [ISIS] (Pharmaceutical) up 9.3% closing at $12.13 on volume more that 3 times average daily volume for the past 3 months. Apparently stock was hyped (Changewave Report) with no major news event. Some speculation that PFIZER might want to acquire ISIS given its recent clinical trial results. Given the very encouraging results for ISIS 301012, we are inclined to agree, but it’s beginning to get awfully pricy.

ARENA PHARMACEUTICALS INC [ARNA] jumped 7% closing at $14.14 with volume more than twice the average trading volume for the past 9 months as it announced the pricing of its public offering of 11,500,000 shares at $13.21. Would say this is a speculative but attractive buying opportunity given the product pipeline and liquidity.

MADDEN STEVEN LTD [SHOO] tumbled 7.7% closing at $36.34 following a downgrade by First Albany from “Buy” to “Underperform.” The analyst pointed to the steep discounting for the product line at major distributors. Does look like some disappointing numbers lie ahead. Don’t see much of an opportunity here.

CUBIST PHARMACEUTICALS INC [CBST] (Pharmaceutical) also tumbled 7.9% closing at $18.82, following a downgrade by Piper Jaffray from “Outperform” to “Market Perform.” Can’t find any compelling reason for the downgrade so this appears to be a speculative but attractive buying opportunity.

One of the infamous SI white rabbits (defined as late SEC filers) DORAL FINANCIAL CORP [DRL] dropped 10.5% closing at $3.00 apparently due to concerns of long-term viability now that it has straightened out its accounting. Lack of transparency here continues to be a concern.

Daily Sector Performance Chart

Back in the black – but not by much! The average return in the SI universe on Friday was 0.06% with only 48.5% of the universe posting a positive return for the day. 47.3% posted negative returns and 4.2% were unchanged. Big sector moves were posted by Online (up 1%) and Construction (down 1.2%).

ADOLOR CORP [ADLR] could not avoid the pain and anguish of the dreaded FDA “approvable” letter, dropping 44.8% to close at $7.69. The company’s leading New Drug Application (NDA) for Entereg® has been seriously delayed due to the FDA’s request for additional safety studies. The drug is designed to treat both the slow return of gut function that sometimes results from GI or other surgeries as well as opioid-induced bowel dysfunction, resulting from the chronic use of opioid analgesics. While the safety study on Entereg submitted by GlaxoSmithKline in late September 2006 indicated an increase in the reported incidence of serious cardiovascular adverse effects in patients receiving the drug relative to placebo, the increase was not statistically significant, so the FDA is withholding final approval pending 12-month safety data, including an analysis of serious cardiovascular events. We are definitely in the tail of the distribution on daily returns here and it there is likely a very strong buying opportunity UNLESS the company is unable to survive the delays implied by the “approval” letter. In this case, the company has a little over $200 million in cash and short-term investments and a burn rate of about $17 million per quarter for the first 9 months. The company is generating about $5 million per quarter in contract revenue, so with some belt-tightening, survival should be possible. Unfortunately, there does not appear to be much else in the pipeline.

OVERSTOCK.COM INC [OSTK] was crushed, ending down 17.9% to close at $14.59, a new 52-week low, after reporting dismal third quarter results. Revenue for the third quarter was $158.7 million, down 6% compared to the third quarter 2005. The company reported a net loss of $24.5 million or $1.19 per share compared to a net loss of $12.4 million or $0.66 per share for the same period last year. Looking at the online traffic pattern (below), it appears that the steady decline through 2006 has finally stopped, but actually by this time last year the end-of-year seasonal surge had already begun, and yet we see no evidence of a fourth quarter pop on the radar yet! The company appears to have its act together this year in terms of handling traffic and doing a better job of inventory management. It also would appear to be achieving more brand recognition. However, it still seems to be seriously misfiring in targeting and conversion. Perhaps its outsourcing of these functions might lead to better execution, but so far there is no evidence of progress on this front!

ARRIS GROUP INC [ARRS], which provides communications products and services to cable system operators and telecommunications provides, slipped 9.5% closing at $11.49 after announcing that it would be offering $225 million of convertible senior notes due 2026 through a public offering. The proceeds of the offering appear to be intended to fund future acquisitions, although nothing specific is mentioned. Not knowing the target, but assuming future dilution seems likely, we are reluctant to view this as a buying opportunity at this time. Note also that the company appears to have considerable risk associated with customer concentration, having 68.3% of its revenue from four customers (Comcast, Libert Media Intl., Cox Communications, and Time-Warner Cable) in the third quarter.

PALM INC [PALM] slipped 7.6% closing at $14.24 following the announcement that NTP INC had filed yet another patent infringement suit. If it weren’t for the fact that PALM appears to have its hands full with competing with the new Pearl, we would say this a great buying opportunity for PALM since it appears from this vantage point that the patents claimed by NTP are likely to be invalid.

XM SATELLITE RADIO HOLDINGS INC [XMSR] rocketed up 15.6% closing at $13.17 as it beat expectations by posting an $84 million loss for the third quarter, down 36% from the loss posted in the third quarter last year. Revenue was up 57% year-over-year, coming in at $240 million and it ended the quarter with 7.185 million subscribers. The company’s new guidance for subscribers by the end of the year is between 7.7 and 7.9 million!!! I find this once again very disappointing, as the new guidance range slips closer to the bottom end of the previous guidance (7.7 to 8.2 million).

TRAFFIC.COM INC [TRFC] took the fast lane shooting up 20.3% to close at $7.40 on the news that it had entered into an agreement with NAVTEQ [NVT] to be acquired for $179 million ($47 million in cash and the remainder in stock). Given the TRFC financials, it appears it will be a very long time before this deal is accretive to NVT earnings and I would not consider NVT to be a buying opportunity at this time, despite some obvious strengths on other fronts.

OUTBACK STEAKHOUSE INC [OSI] was up a bloomin’ 22.6% closing at $39.75 on the news that it had agreed to a buyout by a private equity group for about $3 billion. The group involved Bain Capital Partners LLC and Catterton Partners, in addition to company founders. The deal involves a buyout price of about $40 per share plus the assumption of about $185 million in debt.

SWIFT TRANSPORTATION CO INC [SWFT] soared 24.1% closing at $29.84 after a press release was issued indicating it had received a letter from Jerry Moyes, the company’s largest shareholder, a current director, and CEO, proposing to acquire all of the company’s outstanding stock in an all-cash transaction at a price of $29.00 per share. More confirmation that the landscape is littered with nuggets… With so many of these buyouts coming from people who obviously know the real value of the company’s, there can be little doubt that significant value opportunities are available in the market today.

FOUR SEASONS HOTEL [FS] jumped 29.2% closing at $82.50 on the news that it had received an offer for $3.7 billion ($82 per share) from a private equity group that includes Isadore Sharp, the hotelier’s chairman and CEO.

KOS PHARMACEUTICALS INC [KOSP] kicked up 53.8% closing at $77.06 on the news that ABBOT LABS [ABT] had agreed to pay $78 per share in cash in a deal valued at about $3.7 billion. KOSP is a pharmaceutical company specializing in the treatment of chronic cardiovascular, metabolic and respiratory diseases. Its major product is Niaspan® which is taken to raise HDL (good cholesterol) levels.

Daily Sector Performance Chart

All sectors were in positive territory for the day, with the average member of the SI Universe posting a gain of 1.2% and significant gains across all size ranges - large to micro-caps.  About 77% of the members in the SI Universe posted positive returns for the day.  The outliers were Restaurants (up 2.6% on average) and Travel (up 2.7% on average).

CANDELA CORP [CLZR] was burning brightly up 26.5% to close at $13.86, apparently having learned a lesson about the importance of beating estimates from last quarter’s dismal experience. For the first fiscal quarter, the company reported earnings of $0.13 per diluted share after special charges, easily topping the consensus estimate of $0.05 per share. Revenue for the quarter was $33.474 million, which also topped the consensus estimate of $32.26 million. Given current margins, it appears that the opportunity noted in our last post on CLZR is no longer obvious.

YANKEE CANDLE INC [YCC] shot up 17.4% closing at $33.73 on the announcement that it had agreed to a private equity buyout by Chicago based Madison Dearborn Partners LLC in a deal valued at $1.7 billion, including debt. If the deal is approved, shareholders will receive $34.75 per share when the transaction is completed in early 2007.

LIFECELL CORP [LIFC] was showing very few signs of life on Wednesday, dropping 25.2% to close at $23.82 after announcing third quarter results that were slightly below expectations, but revising guidance for the fourth quarter significantly lower. Third quarter earnings of $0.15 per share were only $.01 below the consensus estimate and more than twice the earnings reported in the same period last year. Product revenues for the quarter were $35.1 million, compared to $24.3 million for Q3 2005. The new revenue guidance is for the full year to be in the range of $138 to $140 million, compared with the previously announced range of $143 to $148 million. Operating income is projected to be in the range of $32.5 to $33.5 million, compared to previous guidance of $34 to $36 million. While the P/E ratio of 52 is certainly high, there is probably some upside potential here since even the revised guidance yields a growth rate of about 33%.

SELECT COMFORT CORP [SCSS] provided precious little comfort in the numbers as it dropped 17.1% to close at $20.77 after reporting third quarter results. The stock was downgraded by Piper Jaffray from “Outperform” to “Market Perform.” The numbers were clearly not bad, with earnings at $0.25 per diluted share, up 25% over the third quarter of 2005. Net sales of $208.3 million were up 18% over the same period last year. While the top line was below the consensus estimate of $211.52, the earnings were in line with analysts’ expectations. The company also revised upward its earnings guidance for the full year to a range of $0.95 to $0.97 per diluted share from the previous range of $0.93 to $0.97 per diluted share for fiscal 2006. For fiscal 2007, the company now projects earnings to be in the range of $1.18 to $1.25, corresponding to earnings growth next year between 22% and 32%. At this rate of growth, it appears SCSS represents a buy opportunity with a current P/E of only 23.6.

ENCORE WIRE CORP [WIRE] dropped 13.4% closing at $31.23 following its third quarter report. Net sales for the third quarter came in at $372.9 million compared to $207.5 million for Q3 2005, and net income came in at $1.51 per diluted share compared to $0.48 per diluted share last year. Net sales were in line with expectations and earnings were $0.05 below expectations, but still up more than 3 fold over the previous year. With a P/E ratio of only 6.17 and strong international demand for copper, this appears to be a great opportunity to get WIREd.

TRAVELZOO INC [TZOO] dropped back to earth giving up 12.2% following yesterday’s huge gain, to close at $33.90. Given some deterioration in reach over the past 3 months, I would be cautious here.

AVAYA INC [AV] advanced 8.4% closing at $12.78 after reporting fourth quarter results the beat analysts’ expectations. Earnings for the fourth fiscal quarter were $0.17 per diluted share, excluding special items, versus the consensus estimate of $0.13 per share. Fourth quarter revenue of $1.364 billion was up 5.2% over the same period last year, and also topped the consensus estimate of $1.34 billion. Given the current P/E ratio of 7.46, and strong cash flow, there may still be some upside here, but we don’t see a compelling source of growth at this time.

While we expected AMAZON.COM INC [AMZN] to be up on the basis of beating expectations (however anemic), the actual extent of the pop was an amazing 12.4% closing at $37.68. If you look at AMAZON’s reach in the fourth quarter of last year, and the current trajectory, this stock appears headed for a massive disappointment in Q4.

My last AMZN purchase offered the option of online access to the book while I was waiting for the delivery of the hard copy – for an additional $20. At first I was very impressed with the cleverness of the promotion, being really anxious to start reading and thinking I would have all kinds of cool searching and markup capabilities with the online version that would easily justify the added expense, and yet for AMZN the extra cost of the electronic content should have been insignificant. Unfortunately, the reality of the experience was quite disappointing. The online reading tool is quite flaky and needs a lot of work. I will be sure to hold off on my next online reading option until they fix some of the problems. This is not likely to save the fourth quarter, and just adding another product line isn’t going to do it either.

We’re not sure how they convinced customers that “You have to be here,” but somehow they did and thanks to same-store sales growth of 11.8% at company-owned restaurants, BUFFALO WILD WINGS INC [BWLD] stampeded up 19.2% closing at $49.21. Earnings for the third quarter of $0.40 per share were up 82% over the same period last year.

DIGITAL ANGEL CORP [DOC] jumped 21.5% closing at $3.05 and APPLIED DIGITAL SOLUTIONS INC [ADSX] soared 31.4% closing at $2.22 after announcing that DIGITAL ANGEL had been granted a patent for its syringe-implantable glucose-sensing RFID microchip. DIGITAL ANGEL is majority-owned by APPLIED DIGITAL. While the news is good, it of course must be recognized that much work including development, clinical trials and FDA approval lie ahead. Given the likelihood that it will take several years before we see significant revenues here and the fact that both companies have been losing money, we think it would be prudent to avoid the exposure until the DEXCOM continuous glucose monitoring technology is proven viable and at lease some clinical trial hurdles have been cleared.

The Daily Sector Performance Chart

The average gain for the day across all 3,566 members of the SI Universe was 0.5% with 61.2% of the members posting positive returns for the day. The big gainer for the day was the Railroad sector, which was up 2.8% on average. NORFOLK SOUTHERN CORP [NSC] led the charge, up 10.1%, but GENESEE & WYOMING INC [GWR] and CSX CORP [CSX] also turned in strong performances (up 4.7% and 3.8%, respectively).

BRINKER INTERNATIONAL INC [EAT], which either owns, operates or franchises some 1.662 restaurants under the names of Chili’s Grill and Bar, Romano’s Macaroni Grill, Maggiano’s Little Italy, and On the Border Mexican Grill and Cantina, was very much on fire, shooting up 17.6% to close at $46.50 per share. The reason of course was some very hot first quarter (fiscal 2007) numbers. Despite the fact that same store sales were down 2.1% (gasoline prices), smart expansion and controlled costs, generated earnings of $0.57 per share for the quarter, versus a consensus estimate of $0.46 per share.

CENTENE CORP [CNC] shot up 26.6% closing at $23.10 after reporting very strong third quarter results. Third quarter revenue was $631.2 million, easily topping the consensus estimate of $615.63 million and earnings from operations (excluding a non-cash impairment charge related to the loss of a Kansas contract) were $0.31 per diluted share versus the consensus estimate of $0.28 per diluted share. Guidance for the fourth quarter and fiscal 2007 was very bullish. For the fourth quarter revenue is projected to be in the range of $685 to $690 million versus a consensus estimate of $678.05 million. The projection for fourth quarter earnings is $0.38 to $0.43 per diluted share versus the consensus estimate of $0.35 per diluted share. For fiscal 2007 the company is projecting revenue of $2.73 to $2.83 billion versus a consensus estimate of $2.71 billion, and earnings of $1.51 to 1.61 per diluted share versus the consensus estimate of $1.33 per diluted share.

Several Online sector stocks have been reporting very strong fourth quarters. TRAVELZOO INC [TZOO] surged 19.2% closing at $38.62 and NETFLIX INC [NFLX] jumped 18.6% closing at $27.37, after reporting strong third quarters. Of course AMAZON.COM [AMZN] reported after the close but given the pop in after hours trading, it should also do very well tomorrow.

U.S. steel maker, NUCOR CORP [NUE], bolted up 11.7% closing at $61.58 amid rumors of becoming a takeover target.t

TITANIUM METALS CORP [TIE] surged steadily during the day up 9.1% to close at $32.04, apparently in anticipation of strong third quarter results. We’ll see.

COACH INC [COH] charged ahead 7.9% closing at $39.21 on very impressive first quarter (fiscal 2007) results. Earnings were up 40% at $0.34 per share versus a consensus estimate of $0.31 per share. Net sales for the quarter were $554 million compared with $449 million for the same period last year, easily topping the consensus estimate of $542.44 million.

NEUROMETRIX INC [NURO] was hammered on Tuesday, closing down 29% at $14.10, as concerns mounted over insurance coverage for the NeuroMetrix test for nerve damage (e.g. carpal tunnel syndrome), called NC-stat. This led to a downgrade by Susquehanna Financial from “Positive” to “Neutral,” at about 11:30 a.m., which coincided with a drop of about $4 in the price of the stock. The reluctance of insurance companies to cover the test apparently relates more to the issue of using standard billing codes to report the NC-stat treatment. Given FDA approval and high correlations with “gold” standards like EMG and MRI studies, it appears that the device will inevitably find some market equilibrium pricing that is acceptable to the insurers. The diagnosticians must find the speed and ease of the test extremely attractive. Given some compromise being likely, it sounds like the reaction was probably too extreme and that this is probably an interesting buy opportunity (forward P/E of 25.6 with 73% year-over-year quarterly revenue growth).

SIGMATEL INC [SGTL] tumbled 12.9% closing at $4.87 after reporting third quarter results. While the company reported GAAP income of $0.32 per share, this was due to the sale of products in its PC audio line. Excluding special items, there was a non-GAAP loss of $0.30 per share, compared to a non-GAAP profit of $0.18 per share for the third quarter of 2005. The consensus estimate had been for a loss of $0.31 per share, so the actual result was slightly better. The consensus revenue estimate for the third quarter had been for $39.8 million, and actual third quarter revenue was $45.0 million, beating expectations. So of course it was the guidance for the fourth quarter that sent the price tumbling. Fourth quarter revenue is projected to be in the range of $41 to $46 million with a non-GAAP loss of between $0.29 and $0.23 per diluted share (assuming 35.5 million diluted shares outstanding and an effective tax rate of approximately 23%). As a result of the sale of the PC audio products, the company has already reduced headcount and expects to cut another 60 positions in the fourth quarter. Meanwhile, the proceeds of the sale are being invested in new portable multimedia products. We don’t expect any significant upside until July-Oct 2007, once the company reaches break-even and some new products have been released.

ARENA PHARMACEUTICALS INC [ARNA] dropped 10.1% closing at $15.20 after a downgrade by AG Edwards from “Buy” to “Hold.” With 11 “Strong Buy” or “Buy” ratings to only one “Hold,” and some strong new drug candidates: lorcaserin hydrochloride for the treatment of obesity and APD125 for the treatment of insomnia, this stock remains a very strong speculative buy and Tuesday’s drop seems to suggest a buying opportunity.

MICROSEMI CORP [MSCC] yielded 8.4% closing at $16.82 on the news that it was acquiring Israeli based POWERDSINE LTD. in a deal valued at $245 million ($168 million net of cash). MSCC expects the acquisition to be dilutive to earnings for the first 12 months and accretive thereafter.

DEXCOM INC [DXCM] dropped 7.8% closing at $9.03 after reporting disappointing third quarter results. The company reported a loss of $0.48 per share for the quarter compared to a loss of $0.25 for the same period last year. The consensus estimate had been for a loss of $0.41 per share. On the positive side, it might appear the company is close to becoming cash flow positive. Cash and cash equivalents at the end of the third quarter were only about $775 thousand less than at the end of the second quarter. However, with revenues still well under one million, and a net loss of the third quarter of $13.4 million, it appears there is a long way to go before cash flow break-even. The company is aggressively building up its sales force with SG&A up by about $2 million over the second quarter. The fourth quarter should provide some insight into the ramp-up time for new sales folks. The major question is the extent to which continuous glucose monitoring of diabetics is perceived as necessary or worth the added expense. Sequential revenue growth was about 76% for the quarter, which is interesting, but we really need at least one more data point before modeling this.

The Daily Sector Performance Chart

The average loss for the day was a mere .04% for the entire SI universe of 3,565 members, with 43.3% posting positive returns.

The big gainers on Tuesday were the Mining sector (up 3% on average) and Oil & Gas Production (up 2.1% on average).

SANDISK CORP [SNDK] sank 20.4% to close at $49.15 after reporting third quarter results that beat expectations, but generated concerns regarding pricing pressures that led to downgrades by Citigroup from “Buy” to “Hold” and by Oppenheimer from “Buy” to “Neutral.” Net income of $0.51 per share was reported for the quarter on revenues of $751 million, up 27% from the same period last year. Excluding acquisition charges and the impact of stock compensation expenses, net income would have been $0.61 per share, where the consensus estimate had been $0.57 per share. It appears that concern about the decline in price per megabyte led to the downgrades and rather extreme drop in market value. Increasing price pressure reduced operating income from 27% of revenues in Q3 2005 to 21% of revenue (non-GAAP) in the Q3 2006, but this does not seem to justify the drop in stock price. Once again, this would seem like a good place to buy.

STAMPS.COM INC [STMP] tumbled 19.4% closing at $15.45 following the announcement of third quarter 2006 results. While earnings of $0.18 per share ($0.21 excluding stock compensation) increased 92% versus the same period last year and beat the consensus estimate of $0.19 per share (ex stock compensation), the guidance for the remainder of 2006 and 2007 fellow below analysts’ estimates. The company now projects revenue of $82 to $85 million for fiscal 2006, compared to the consensus estimate of $87.06 million, and revenue of $90 to $100 million for fiscal 2007, compared with a consensus estimate of $104.4 million. Given the projected revenue growth, it would appear the company now enjoys an appropriate valuation.

SENOMYX INC [SNMX] nosedived 16.4% closing at $15.24 after reporting rather distasteful results for the third quarter. The company reported a net loss of $0.17 per share which was slightly better than the consensus estimate of a loss of $0.19 per share. However, the third quarter revenue of $3.2 million fell considerably short of the $3.73 million consensus estimate. The stock was downgraded by First Albany from “Buy” to “Neutral.”

CATERPILLAR INC [CAT] tumbled 14.5% closing at $59.00 after missing third quarter estimates and being one of the first to admit that the housing slow down is likely to continue well into 2007. As we have observed earlier, housing starts are currently near equilibrium, but given the long period of excess inventory build, the full correction could take us a lot lower. Given the international demand and commercial construction needs, the impact of reduced residential construction on CATERPILLAR should be easy to handle and given the very attractive P/E ratio, CAT presents an attractive buying opportunity.

A leading provider of data integration software, INFORMATICA CORP [INFA], dropped 10.5% closing at $12.22, or $0.23 below where it closed on the first trading day of 2006, after reporting third quarter results. The company reported revenue of $78.9 million for the third quarter, up 21% over the same period last year, which was in line with a consensus estimate of $78.93. Net income for the period was $0.10 per share on a GAAP basis, or $0.16 per share, excluding share-based compensation, beating the consensus estimate of $0.14 per share. Apparently fourth quarter and fiscal 2007 guidance covered in the conference call but not in the press release, led to a downgrade by Wedbush Morgan from “Strong Buy” to “Buy.” Unfortunately, I can’t access the conference call through the company’s web site, so it’s hard to assess how far short of expectations (2007 revenue of $372 million = 14% growth) the new guidance is. I’ll reserve final judgment until I can get the new guidance.

RAMBUS INC [RMBS] dropped 8.6% on Friday closing at $16.71, following a press release after the markets closed on Thursday, indicating the internal investigation had determined that “a significant number of the stock option grants were not correctly dated or accounted for.” Apparently the period of greatest impact was 1998 to 2001. Preliminary estimates are that the compensation charges in connection with these stock option grants will be in excess of $200 million. Note that the price drops and trade volumes on Wednesday and Thursday morning are rather suspicious.

SYNAPTICS INC [SYNA] soared 16.5% closing at $28.06 after announcing fiscal 2007 first quarter results. While the revenue and earnings results topped consensus estimates, they were certainly not spectacular. However, the company’s guidance for the second quarter of 2007 called for sequential revenue growth of 25% to 30%, which dramatically topped the consensus estimate of about 8% sequential growth.

VICAL INC [VICL] took wing soaring 9.9% closing at $5.88, following its announcement that a single injection of VICAL’s Avian Flu DNA vaccine provided 100% protection in a population of ferrets against the highly virulent H5N1 virus. Other conventional vaccines under development have so far required two or more doses in humans to provide adequate levels of protection.

GOOGLE INC [GOOG] continues its success in monetizing internet search queries and with the recent acquisition of YouTube is presumably well poised to benefit from the exploding video capabilities of the web. By once again beating consensus estimates the stock advanced 7.9% closing at $459.67 and looks like it should soon take out $600. Hope you’re enjoying our little AJAX experiment with Google maps in the sidebar. GeoFinancial views by sector are usually available by about 6 p.m. Eastern Time – long before this blog goes to bed.  BTW, do you see the real power of the tool when the U.S. map is replaced by another grid?

CONTINENTAL AIRLINES INC [CAL] soared 7.4% closing at $35.05 following a strong third quarter result, beating expectations for earnings and revenues, coupled with a raising of its issuer default credit rating by Fitch Ratings from “CCC” to “B-“ (still junk bond status). A big drop in oil prices was also favorable.

Daily Sector Performance Chart

The markets took a bit of a breather on Friday, posting an average loss of -0.51% for the day, with only 33.1% of the 3,570 stocks in the SI Universe posting a positive return for the day. The generally strong earnings reports in the Airlines sector coupled with lower oil prices led to a strong average return for the sector (up 1.7%) and Mining at the other extreme gave back some of the huge gain seen yesterday (down 2.8%).